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Manufacturing PMI output index hits highest since February
2018, joined by similar strength in new orders and exports
Jobs downturn eases as future sentiment improves
But Germany accounts for more than half of the region's
expansion of output in September
The eurozone's manufacturing recovery gained further momentum in
September, rounding off the strongest quarterly rise in production
since the opening months of 2018. However, the region's recovery
has become increasingly reliant on Germany.
Faster output and order book growth spurs recovery
hopes
A rise in the survey's output index from 55.6 in August to 57.1
in September indicated the fastest manufacturing production growth
since February 2018. The increase marks a strong turnaround from
the low of just 18.1 in April, when demand slumped and many
production facilities were shut due to the coronavirus disease 2019
(COVID-19) pandemic. The latest index reading is broadly consistent
with manufacturing output growing at an annual rate in excess of
3%.
Order book growth and exports also accelerated, indicating a
welcome strengthening of demand. Inflows of new orders expanded at
the quickest pace since February 2018, while exports (which include
intra-euro area trade) likewise surged higher and at the fastest
rate seen over this two-and-a-half-year period. Given the high
degree of intra-eurozone trade, new orders and export orders
typically follow very similar trends.
Backlogs of work, a key gauge of capacity utilisation, likewise
rose to the greatest extent for almost two-and-a-half years,
underscoring how output is not just rising as firms eat into
pre-placed orders, but that inflows of new business are leading to
further improvements in the pipeline of work for coming months.
Job losses ease as optimism improves
Job losses consequently eased to the lowest seen over the past
seven months as firms grew more upbeat about prospects for the year
ahead, with optimism returning to the highs seen before the trade
war escalation in early 2018.
Germany drives recovery
The recovery would have been far more modest without Germany,
however, where output has surged especially sharply to account for
around half of the eurozone's expansion in September. The striking
gain reported in Germany contrasts with relatively weak production
growth in Spain and France, offset slowdowns in Italy and Austria,
and countered a particularly worrying return to contraction in
Ireland. Excluding Germany, eurozone output growth would have
weakened to the lowest since June.
Divergent export performance explains much of the difference
between national production trends, with Germany the stand-out
leader in terms of export sales in September, led by a
strengthening of demand for investment goods such as plant and
machinery.
Outlook
Encouragingly, optimism regarding the year ahead rose not only
in Germany but also in France, Italy, Spain and Austria, hinting
that the upturn could broaden out in coming months. Without a more
broad-based recovery, the sustainability of the upturn looks at
risk, with additional worries fuelled by rising COVID-19 infection
rates. The latter currently represent an increasing gloomy cloud on
the region's recovery, especially given the dampening effect on
demand seen
in the flash services PMI numbers in September, which showed
the sector sliding back into contraction.
Chris Williamson, Chief Business Economist, IHS
Markit
Tel: +44 207 260 2329
chris.williamson@ihsmarkit.com
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
